TMI Blog2021 (2) TMI 608X X X X Extracts X X X X X X X X Extracts X X X X ..... osed by the RBI u/s 47A of the Banking Regulation Act, 1949 and ₹ 94,200/- for non-compliance of guidelines on customer service, guidelines in respect of exchange of coins and small de-nomination notes and mutilated notes. The ratio laid down in the decisions mentioned at para 12 is squarely applicable to the instant case instead of the decision in ANZ Grindlays Bank [ 2003 (8) TMI 174 - ITAT DELHI-A relied on by the Ld. DR. Therefore, we delete the disallowance levied by the AO. Accordingly, the 2nd ground of appeal is allowed. MAT Computation - adding the tax on non-monetary perquisite in computing book profits u/s 115JB - whether amount paid represents employee cost and not tax in the hands of appellant - HELD THAT:- Similar issue arose before the Tribunal in Rashtriya Chemicals Fertilizers Ltd. [ 2018 (3) TMI 1564 - ITAT MUMBAI] . The Tribunal held that taxes borne by the assessee on non-monetary perquisites provided to employees forms part of Employee Benefit cost and akin to Fringe Benefit Tax since they are certainly not below the line items, since the same are expressly disallowed u/s 40(a)(v), the same do not constitute Income Tax for the assessee in terms o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax department filed an appeal before the High Court. The Hon ble Gujarat High Court observed that the tax was not deducted on the aforesaid expenses since the same were a contingent liability and for which bills were not issued. Subsequently, as and when the final bills were received/issued, the tax was deducted. Accordingly, the High Court deleted the disallowance under Section 40(a)(ia) of the Act and upheld the orders of the Tribunal as well as the CIT(A). As relying on SANGHI INFRASTRUCTURE LTD. [ 2018 (7) TMI 2072 - GUJARAT HIGH COURT] we affirm the order of the Ld. CIT(A) and dismiss the 2nd ground of appeal of revenue. - ITA No. 3394/MUM/2019, ITA No. 3849/MUM/2019 - - - Dated:- 9-2-2021 - Shri Saktijit Dey (Judicial Member) And Shri N.K. Pradhan (Accountant Member) For the Assessee : Mr. C. Naresh, AR For the Revenue : Mr. V. Sreekar, DR ORDER PER N.K. PRADHAN, A.M. The captioned cross appeals-one filed by the Assessee and the other by the Revenue-are directed against the order of the Commissioner of Income Tax (Appeals)-2, Mumbai [in short CIT(A) ] and arise out of order u/s 143(3) of the Income Tax Act, 1961 ( the Act ). As similar issues a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich is extracted at para 3.3 of the assessment order. However, the AO was not convinced with the said reply and following the decision of the Hon ble Bombay High Court in Godrej Boyce v. DCIT (328 ITR 81) computed the disallowance u/s 14A r.w. Rule 8D at ₹ 279,23,59,048/-; the break-up being ₹ 259,40,87,271/- under Rule 8D(2)(ii) and ₹ 19,82,71,777/- under Rule 8D(2)(iii). As the assessee had added back ₹ 2,22,63,226/- towards expenses incurred for earning exempt income, the AO made an addition of the balance amount of ₹ 2,77,00,95,822/-. The dispute in the instant appeal is the disallowance of ₹ 19,82,71,777/- made by the AO under Rule 8D(2)(iii). 4. In appeal, the Ld. CIT(A) vide order dated 25.03.2019 held that : 4.5.3. I find that the appellant company is a public sector bank and has a past history of being an industrial development bank. It has been noted by the AO that major part of its investment was made as a part of assistance to industrial concerns along with various other facilities like loans, lease, finance, debentures etc. making investment in equity shares and securities as a part of overall package. Such investments in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quently in order u/s 154 dated 29.03.2018, the AO stated that since no disallowance was made by the assessee, he is not satisfied with regard to claim of the assessee that no disallowance is warranted. In this regard, the Ld. counsel relies on the order of the Tribunal in the case of Central Bank of India (ITA No. 3739/Mum/2018), where on a similar circumstances it was held that no disallowance is warranted. 6. On the other hand, the Ld. Departmental Representative (DR) refers to the order of the Ld. CIT(A) and explains that the assessee has suo motu disallowed an amount of ₹ 222,63,226/- which is 1% of the exempt income from dividend and interest, as expense incurred towards exempt income and reduced the same in the computation of income ; the AO was not satisfied regarding the basis of this disallowance and correctness of such claim and invoked Rule 8D. Further, it is stated by the Ld. DR that the AO has passed an order u/s 154 dated 29.03.2018 with the finding that although the assessee had made a suo motu disallowance of ₹ 222,63,226/- in the computation of total income, the same is actually on account of income from venture capital funds offered to tax on accrua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lier years, the same is not acceptable and it is held that the income has to be exempted after allowing expenditure incurred to earn such income. Consequently exemption u/s 10 has to be allowed only on the net dividend/interest income. Further, the assessee's contention that the investments were made out of own fund is also not correct. The AO has passed a rectification order u/s 154 of the Act dated 29.03.2018, stating the following : 9. Disallowance u/s 14A of the Act: As per Para 3.2 of Order u/s 143(3) dated 26.12.2017, mentioned that the assessee company has suo-motu disallowed an amount of ₹ 2,22,63,226/- as expenses has been incurred towards the exempt income and reduced the same in the computation of income. However, assessee has not disallowed the said amount as expenses towards the exempt income. The Tax Auditor also mentioned in Tax Audit report As informed by the management and based on our verifications, the own funds of the Bank comprising of share capital, share premium and reserves exceed the amount invested in the investments yielding tax free income. Hence, amount inadmissible in terms of section 14A in respect of the expenditure incurred in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee vide order sheet noting dated 22.11.2017 was asked to furnish details of dividend Income earned and expenses incurred as per provisions of section 14A and Rule 8D on earning this income. * * * * * * * * * * * * * * * * 3.5 The submissions made by the assessee as well as reliance placed have been carefully considered. Similar issue was also adjudicated and decided against the assessee in the assessment order for earlier Assessment Years. Since there is no change in the facts in the year under consideration, following the reasoning given in the order u/s 143(3) for the earlier years, the same is not acceptable and it is held that the income has to be exempted after allowing expenditure incurred to earn such income. Consequently exemption u/s 10 has to be allowed only on the net dividend/interest income, Further, the assessee's contention that the investments were made out of own fund is also not correct. 7.1 In Maxopp Investment Ltd. v. CIT (2018) 91 taxmann.com 154 (SC), it is held that : 41. Having regard to the language of Section 14A(2) of the Act, r.w. Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xemption u/s 10 has to be allowed only on the net dividend/interest income. Further, the assessee's contention that the investments were made out of own fund is also not correct. The present appeal is directed against the order of the Ld. CIT(A) and arises out of assessment passed by the AO u/s 143(3) dated 26.12.2017. It does not arise from the rectification order u/s 154 dated 29.03.2018 passed by the AO. We need to examine the satisfaction recorded in the assessment order dated 26.12.2017 and not in the rectification order dated 29.03.2018. Thus it is crystal clear that in the instant case, the AO has not recorded any objective satisfaction as to why the computation mechanism provided in Rule 8D(2) of the Rules would come into operation, having regard to the accounts of the assessee. To follow the reasons as recorded for earlier years, as done by the AO in the impugned assessment year, is definitely not an objective satisfaction. Therefore, following the ratio laid down in the above decisions of the Hon ble Supreme Court, we set aside the order of the Ld. CIT(A) in respect of disallowance u/s 14A r.w. Rule 8D(2)(iii) and allow the 1st ground of appeal. 8. The 2nd g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly, the expenditure should have been allowed as deduction. In this regard, reliance is placed by him on the decision by the Hon ble Bombay High Court in CIT v. Stock Bond Trading Company (ITA No. 4117 of 2010) and the order of the Tribunal in Bapunagar Mahila Co-operative Bank (ITA No. 2423/Ahd/2010) and Mangal Keshav Securities Ltd. 46 ITR (Trib.) 458. 11. On the other hand, the Ld. DR refers to the decision in ANZ Grindlays Bank (supra) wherein it is held that- The RBI directions/guidelines are statutory and violation of the same are akin to violation of statutory provisions. The Supreme Court in the case of Bank of India Finance Ltd. v. Custodian [1997] 10 SCC 488, has also held that the directions of the RBI are binding on the banks; such violations are punishable under the provisions of the Banking Regulation Act. Hence, any payment in violation of the RBI directions is not allowable as deduction under section 37. Explanation to section 37(1) makes it clear beyond doubt that any expenditure prohibited by law cannot be allowed as deduction under section 37. [Para 33] Further relying on section 47A of the Banking Regulation Act and the above decision, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Mangal Keshav Securities Ltd. (supra), the assessee was engaged in the business of share/stock broking. It paid a sum of fine/penalty to stock exchange for non-maintenance of KYC forms etc. Said penalty was disallowed by the AO by invoking Explanation 1 to section 37. The Tribunal held that : The assessee-company is engaged into stock broking activities and also in financial services which involves substantial compliance requirements with various regulatory authorities, e.g., BSE, NSE, CDSL, NSDL and SEBI, etc. In the regular course of the business of the assessee-company, certain procedural non-compliance are not unusual, for which the assessee is required to pay some fines or penalties. These routine fines or penalties are 'compensatory' in nature; they are not punitive. These fines are generally levied to ensure procedural compliances by the concerned persons. Only those payments, which have been made by the assessee for any purpose which is an 'offence' or which is 'prohibited by law', shall alone would be hit by the Explanation to section 37. Thus impugned amount of penalty was allowable as deduction. 12.1 In the instant case, as recorde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. I find that Explanation 1(a) below section 115JB provides that the book profit has to be increased by the amount of income tax paid or payable and the provision therefor. The appellant company has made the payment of the tax on the income in the nature of perquisite to its employee and its nature is that of income tax. The tax has been paid by the employer by its own choice. The contention of the appellant that Explanation 1 to sub-section (1) of Section 115JB refers to the Assessee's own income-tax liability is not found to be Justified since the clause (a) to Explanation 1 of section 115JB refers to 'the amount of the income tax paid or payable' and it doesn't refer to 'own income tax liability'. However, it is also noted that the said income tax paid by the appellant is in fact the liability of the appellant since it has agreed to pay such tax. Therefore, the action of the AO in making the addition of tax on nonmonetary perquisites provided to the employees amounting to ₹ 12,16,10,651/- to the book profit u/s. 115JB is upheld. 15. Before us, the Ld. counsel submits that the same issue has been decided in favour of the assessee by the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the employees to the book profit u/s 115JB of the Act. Thus the 3rd ground of appeal is allowed. 17. The assessee has filed an additional ground stating that the amount of education cess and higher secondary education cess is not tax as covered u/s 40(a)(ii) and accordingly allowable as deduction in computing the income from business or profession. The above additional ground is squarely covered in favour of the assessee by the decision of the Hon ble Bombay High Court in the case of Sesa Goa Ltd. (423 ITR 426) and Hon ble Rajasthan High Court in the case of Chambal Fertilizers Chemicals Ltd. (ITA No. 52 of 2018). Following the above decisions, we admit and allow the additional ground of appeal filed by the assessee. 18. In the result, the appeal filed by the assessee is allowed. ITA No. 3849/MUM/2019 (Revenue s Appeal) 19. The 1st ground of appeal Whether, on the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in restricting the disallowance made u/s. 14A r.w.r. 8D(2)(iii) of the I.T. Rules, in view of the Mumbai ITAT's decision in the case of ACIT vs. Citicorp Finance (India) Ltd [108 ITD 457] [MUM]? Whether, on the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the addition of ₹ 78,84,387/- under clause (f) of Explanation 1 to Section 115JB relying upon the decision in the case of Goetze (India) Ltd. v/s. CIT (2009) 32 SOT 101 (Dei), which has been followed by ITAT, Mumbai in the cases referred to in para 5 of the impugned order without appreciating that the above decision in the case of Goetze (India) Ltd. was rendered by the ITAT, Delhi Bench on completely distinguishable set of facts, peculiar to the said case? The Hon ble High Court held that : 4 So far as Question (b) is concerned, the impugned order of the Tribunal followed its decision in M/s. Essar Teleholdings Ltd. v/s. DCIT in ITA No. 3850/Mum/2010 to hold that an amount disallowed under Section 14A of the Act cannot be added to arrive at book profit for purposes of Section 115JB of the Act. The Revenue's Appeal against the order of the Tribunal in M/s. Essar Teleholdings (supra) was dismissed by this Court in Income Tax Appeal No.438 of 2012 rendered on 7th August, 2014. In view of the above, question (b) does not raise any substantial question of law. 24. Facts being identical, we follow the above order of the Hon ble Bombay High Court and confirm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Bharat Earth Movers v. CIT (2000) 112 Taxman 61 (SC), wherein it is held that the provisions in respect of business liability which has arisen during the year and which can be estimated with fair degree of certainty are to be allowed as a deduction u/s 37 of the Act, the Ld. CIT(A) deleted the disallowance of ₹ 99,30,30,984/- made by the AO. 28. The Ld. DR submits that the Ld. CIT(A) should not have ignored the order of the Tribunal in the case of IBM India Pvt. Ltd. (supra) wherein the Tribunal has held that the liability to deduct tax at source exists when the amount is credited to a suspense account or any other account by whatever name called which will also include a provision credited in the books of account. On the other hand, the Ld. counsel submits that the above issue has been decided in favour of the Bank by the Tribunal in assessee s own case for AYs 2008-09 (ITA No. 3423/Mum/2018), 2011-12 (ITA No. 3424/Mum/2018), 2012-13 (ITA No. 3425/Mum/2018) and 2013-14 (ITA No. 3426/Mum/2018). 29. We have heard the rival submissions and perused the relevant materials on record. In the instant case, the assessee vide reply dated 29.11.2017 has state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he financial year. Therefore, it cannot be said that the provisions were in the nature of contingent liability. The contingent liability is dependent on a subsequent event, whereas in the present case, the expenditure had already been incurred. The CIT(A) observed that the taxpayer maintained the books of accounts on the mercantile basis and shown the income and expenditure on an accrual basis. Therefore, the provisions which were made on the basis of properly ascertaining the liability was to be allowed under Section 37(1) of the Act. Further, the taxpayer had only made the provisions in the account but had not credited the same in the accounts of concerned parties and, therefore, the provisions of Section 40(a)(ia) of the Act would not be applicable. The Tribunal upheld the order of the CIT(A). Aggrieved, the tax department filed an appeal before the High Court. The Hon ble Gujarat High Court observed that the tax was not deducted on the aforesaid expenses since the same were a contingent liability and for which bills were not issued. Subsequently, as and when the final bills were received/issued, the tax was deducted. Accordingly, the High Court deleted the disallowance under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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